Goldman Predicts More Medicaid-Tied M&A After WellPoint Deal

Investors were clearly thinking the same thing Monday, when the news sent shares of Amerigroup rivals Molina, Centene and WellCare soaring. Each remains up significantly this week, with Molina up 14% to $26.22; Centene up 19% to $34.41; and WellCare up 20% to $63.24.

Medicaid insurers may have an edge in state-based competitions for dual-eligible patients on Medicare and Medicaid–a sought-after prize in industry and key reason for WellPoint’s buy–based on their experience working with states. But capital requirements needed to serve dual market could drive them to bigger firms, Goldman said.

Goldman also believes larger managed care names, like WellPoint, are seeking to broaden exposure to public-sector managed care and the growth opportunities that it presents. Goldman doesn’t expect the big companies to merger together, citing antitrust concerns, but expects the smaller firms to be targets.

Goldman bumped up the price target on Centene by $7 to $39 while increasing its M&A probability ranking for that firm. It also raised price target on Molina by $4 to $29, though it gives Molina a slightly less chance of being acquired because it is largely owned by a family. Goldman says Centene and WellCare have a 30% to 50% probability of being bought out while Molina has a 15% to 30%.

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